Singapore/New Delhi: India’s corn exports may drop sharply or even grind to a halt as the country’s worst monsoon in nearly four decades threatens to decimate output, prompting New Delhi to scrap an export subsidy.
India’s absence from export markets is unlikely to ignite world prices -- it exports just 2 million to 3 million tonnes amid global trade of more than 80 million -- but could trigger a scramble among Southeast Asian buyers, who depend on small cargoes for nearby shipments.
“There are problems with the crop in some states and output will be lower than last year,” said Atul Chaturvedi, head of the agricultural arm of Adani Enterprises Ltd, a leading Indian commodities trading firm. “It will hardly leave any room for exports as farmers will keep certain quantities for sowing next year. I don’t see too much excitement on the exports front.”
Analysts said while the corn crop in India, Asia’s second largest producer, was suffering from moisture stress that might reduce output to around 17.5 million tonnes, from last year’s 19.3 million, demand was expected to remain steady.
This is putting upward pressure on domestic prices of corn as local feed millers rush to snap up their requirements before the market moves up further.
“India may not go for export of corn as the domestic demand is very strong, especially from the poultry feed manufacturers and the starch industry,” said Veeresh Hiremath, a senior analyst with Karvy Comtrade, a research firm based in southern India.
India’s corn exports registered a more than four-fold increase in the year to September 2008 after the government’s subsidy of 5% made offers from the South Asian country competitive. But the government’s latest trade policy measure has withdrawn the incentive from next year.
I NDIAN CORN UNCOMPETITIVE
India’s domestic corn prices have already surpassed offers from the United States on expectations of lower production and strong demand during the year beginning October.
Indian corn is now quoted $215-$220 a tonne, including cost and freight to Southeast Asia, compared with U.S. corn, which is available for around $215 a tonne. Thai and Pakistani corn are selling even cheaper at $190-$195 a tonne.
“Nobody will buy Indian corn at these prices, it needs to be at least $10 cheaper than US corn,” said one trader with an international trading company in Singapore. “We are not expecting India to be a significant supplier next year.”
India’s absence is unlikely to ring alarm bells on the Chicago Board of Trade, but will force buyers to turn to the United States or Latin America and provide some support to the Chicago market, now hovering near nine-month lows.
Malaysia and Vietnam, India’s top corn importers, are already snapping up cargoes from Thailand, Pakistan and Brazil in the absence of Indian supplies.
“The Malaysians are trying to take US shipments and they bought one panamax of Brazilian corn last week,” the Singapore trader said. “Vietnam is taking Thai and Pakistani corn.”
Corn, which is crushed and used along with soybean meal to make animal feed, has dropped 23% on CBOT this year to its lowest since December as an economic slowdown erodes meat consumption and on prospects of the second largest corn output in history in the United States, the world top exporter.
The US Department of Agriculture has estimated India’s corn consumption to jump by almost a quarter to 17.6 million tonnes in the year to September, from a year ago and it is likely to stay steady in 2009/10.
This would leave the country with little exportable surplus, with production expected to fall around 10% from an estimated output of 19.3 million tonnes in Asia’s No. 1 corn exporter, contrary to earlier expectation of a bumper crop.
India’s weather office has said deficiency in corn growing regions at the end of third week of August ranged between 20 and 37%.
Although the overall corn planted areas rose this year, the delay as well unequal spread of monsoon rains halved the corn area in southern state of Andhra Pradesh, the country’s main producing state. The scanty rains in the northwest region also lowered 6% coverage in Rajasthan.
Andhra Pradesh and Rajasthan, India’s top two corn-producing states, contribute 17% and 14% respectively of total output.
Besides monsoon woes, India’s poultry feed industry is recovering this year from bird flu and will need more corn, a factor that has already boosted domestic prices.
“There is huge demand for corn-based feed. The government should ensure enough domestic availability, and then think of exports,” said Shashi Kapoor of Poultry Federation of India.
India’s poultry and livestock feed industry is expected to grow at 8 to 10% in 2010 after being hit by lower sales because of bird flu. Growth in the last two years dropped to 5% from an average annual rate of around 12%.
And the poultry industry is already lobbying the government for an export quota.
Lower production and strong feed demand are likely to drag down India’s corn exports next year, to just a quarter of an estimated 2 million tonnes in the year to September.
“I think 500,000 tonnes at best, as Indian values will be uncompetitive with the export incentive gone,” said Chaturvedi.